"Investors are all looking for ways to be less exposed rather than more exposed to the equity market."

In a similar vein, Smith said that hedge funds were deeply involved in the "carry" trade and would be on the lookout for ways to exit as the backdrop that supports it changes.

The "carry" trade involves investors borrowing in low-yielding currencies such as the Japanese yen in order to invest in assets in high-yielding currencies.

In something of a warning, the yen has strengthened this week as investors have become nervous about global liquidity withdrawal. Smith said it was not clear when the "carry" trade would unwind, but that it was certain that it would.

"(Its) going to work until it stops horribly, brutally and sharply," he said. "It is difficult to see it unwinding elegantly."

With reference to hedge fund trends in general, Smith said that with risk premia so thin over the past few years, funds have been looking for opportunities outside major trading markets.